Does trade liberalization increase global pollution?

In this paper we consider a simple duopoly market in which a home firm and a foreign firm use labor to produce an identical product and supply it to the home market. Firms emit pollution as a by-product of production. We show conditions under which international trade liberalization decreases (increases) the global pollution.     

Does hidden information make trade liberalization more fragile?

Abstract This paper focuses on the impact of hidden information on strategic interaction in the context of trade agreements. In the presence of informational asymmetry it is possible that a tradeoff between liberalization and sustainability of cooperation emerges. It is shown that it may be optimal to agree on a degree of liberalization associated with a strictly positive ex ante probability of deviation occurring. In that case, cooperation will break down in finite time, and the optimal degree of liberalization cannot be applied indefinitely.     

Does free trade promote environmental technology transfer?

We investigate how environmental and trade policies affect the transfer of environmental technology in a two-country model with global pollution. By comparing free trade and tariff policy with or without commitment, the following results are obtained. First, firms avoid the implementation of environmental tax by contracting technological transfer. Second, there is a case in which free trade is preferable to a tariff policy for both countries when there is no commitment to a tariff level. Third, free trade is not Pareto-preferred to a tariff policy when there is a commitment.     

Does antidumping use contribute to trade liberalization in developing countries?

Abstract .  Some supporters of antidumping have argued that this procedure serves as a kind of 'safety valve' for protectionist pressure. In this paper, we investigate whether there is empirical evidence that the use of antidumping actions has contributed to ongoing tariff reductions over the period 1988 to 2004 in a sample of 23 developing countries, some of which have become aggressive users of antidumping in recent years. The evidence is not supportive of the safety valve argument for these countries. Instead, evidence suggests that past use of antidumping may have led to less rather than more trade liberalization.     

Do liberal trade policies promote trade openness?

Although trade liberalization and trade openness are assumed to be strongly associated with each other and often used interchangeably, the empirical evidence has not been forthcoming. This article is an attempt to fill this gap. By investigating the link between trade openness and trade restrictions, it argues that while a negative link between various types of trade restrictions and trade openness is evident, the relationship is weak, statistically not always significant and there is no clear evidence that the removal of trade restrictions (trade‐liberalization) invariably leads to improved trade openness.     

Does trade liberalization and its associated increased economic activity affect permanently the value and pattern of trade flows?

Despite a number of multi-country case studies based on a variety of analytical frameworks and numerous econometric studies using large cross-country data sets that analyse trade openness and its induced economic activities that alters both the volume and value of trade flows, there is still disagreement among economists concerning the nature of this relationship. In this article, we follow a rather unique approach by estimating the density functions of the observed trade flows and the density functions of trade flows generated by tariff removal using an intertemporal global Computable General Equilibrium (CGE) model. Our inquiry is whether or not the trade flows generated by global tariff elimination impact economies in the long-run and alter their historical underlying distributions. If the latter case prevails, it implies that the economies follow a different transitional path into a new steady-state equilibrium. The density functions, estimated parameters and higher moments of the observed trade flow distributions are distinctly different from the parameter estimates of the trade flows generated by the model. In this sense, trade-inducing economic activity as generated by tariff removal and captured by the neoclassical specification of the model is associated with trade flows along a different transitional path from the observed trade flows.     

Does trust promote growth?

We examine the effect of generalized trust on long-term economic growth. Unlike in previous studies, we use Bayesian model averaging to deal rigorously with model uncertainty and attendant omitted variable bias. In addition, we address endogeneity and assess whether the effect of trust on growth is causal. Examining more than forty regressors for nearly fifty countries, we show that trust exerts a positive effect on long-term growth and, based on the posterior inclusion probabilities, suggest that trust is an important driver of long-term growth. Our results also show that trust is key for growth in countries with a weak rule of law.     

Is trade liberalization a solution to the unemployment problem?

This paper examines how trade liberalization affects the growth rate of sectoral employment in developed and developing countries. The estimation results imply that trade openness in the form of higher trade volumes has not been successful in generating jobs in developing countries. The overall weak, negative employment response to trade volumes may be explained by the negative output response to trade openness in these countries. Our estimates also indicate that higher trade volumes have adverse effect on industrial employment in developed countries. Moreover, while they have positive effect on employment in industry and services in developing countries, trade barriers have adverse effect on employment growth in services for developed countries. Our overall results imply that while trade barriers have relatively little adverse effects and/or in some case a positive effect on employment both in developing and developed countries, higher trade volumes have an adverse effect on industrial employment in developed economies. Thus, trade openness is not in itself a solution to the unemployment problems of developing countries and yet it has not been the prime factor to blame for the lower employment levels in developed countries.     

Does trade weaken product standards?

We investigate the effects of trade on national minimum quality standards for a product whose quality is unobservable to consumers prior to purchase. Two standard‐setting regimes are considered: (1) where the regulatory authority takes the trade share as given; and (2) where the regulatory authority takes full account of its ability to influence the trade share. We find that standards are not a protectionist instrument in this model, the usual gains from trade apply if standards are maintained at their autarky values, trade can cause private standards to be adjusted in a welfare reducing way, and the welfare of a country is higher if its regulatory authority adopts regime (2) rather than (1).     

Does antitrust policy promote competition?

Using new measures of the scope and strength of antitrust policies, we find no evidence that more robust antitrust regimes correlate with more intense local competition or less corporate dominance. The results cast doubt on the common textbook assumption that antitrust policies improve levels of competition.     

Does labor diversity promote entrepreneurship?

We find evidence that workforce educational diversity promotes entrepreneurial behavior of employees as well as the formation of new firms, whereas diversity in demographics hinders transitions to self-employment. Ethnic diversity favors entrepreneurship in financial and business services.     

Does homeownership promote wealth accumulation?

It is well known that homeowners are richer than renters, even after controlling for observable household characteristics. This is often used as an argument for policies that foster homeownership. However, the causal link between homeownership and wealth is difficult to establish due to many potential sources of endogeneity. Utilizing the Household Finance and Consumption Survey for the Euro area, we correct for endogeneity by using inheriting the household’ s main residence as an instrument. The exclusion restriction is that conditional on the total amount of inheritance, inheriting a home affects the wealth position of the household only through homeownership. For the sample of inheritors we find that the local average treatment effect for households that inherit a home and stay homeowners is negative. Owning a home reduces riches due to sizable reductions in the net holdings of financial and other real wealth of the treated households.     

Does trade foster contract enforcement?

Contract enforcement is probabilistic, but the probability depends on rules and processes. A stimulus to trade may induce traders to alter rules or processes to improve enforcement. In the model of this paper, such a positive knock-on effect occurs when the elasticity of supply of traders is sufficiently high. Negative knock-on is possible when the elasticity is low. Enforcement strategies in competing markets are complements (substitutes) if the supply of traders is sufficiently elastic (inelastic). The model provides a useful structure of endogenous enforcement that gives promise of explaining patterns of institutional development. Presented to the GEP Conference on ‘New Directions in International Trade Theory’, 8 and 9 June, 2007. An earlier version of this paper under another title was presented to the American Economic Association meetings, January 2004.     

Horizontal and vertical intra-industry trade in Australian manufacturing: does trade liberalization have any impact?

This paper contributes to the literature on intra-industry trade (IIT) by disentangling such trade into horizontally and vertically differentiated products, and investigating their determinants in the context of trade liberalization in Australia. IIT in Australian manufacturing has increased following trade liberalization in 1980s and is increasingly dominated by vertically differentiated products. Industry level evidence confirms that the failure to segregate IIT into horizontally and vertically differentiated products produces misleading results as their determinants differ. Also, structural changes brought about by the policy liberalization appear to have an impact on total as well vertical IIT.     

Tax revenue and (or?) trade liberalization

With the public finances of many developing and emerging market countries still heavily dependent on trade tax revenues, further trade liberalization may be hindered unless they are able to develop alternative sources of revenue. Against a background of, and to inform, heightened theoretical controversy as to the appropriate balance between trade and other taxes (not least the VAT), this paper uses panel data for 117 countries over 32 years—cleaned for a variety of problems in standard data sources—to address a central question of fact: Have countries recovered from domestic taxes the revenues they have lost from past episodes of trade liberalization? For high income countries, the answer is clearly ‘yes.’ For middle income countries, there are robust signs of strong replacement both concurrently with the revenue loss and—essentially dollar-for-dollar—in the long run. Signs of significant recovery by low income countries are flimsier, however, and their experiences appear to have varied widely. The picture that emerges for low income countries is thus that replacement has been (and become) higher than previous studies have suggested, but sufficiently incomplete in many cases to give cause for concern.     

Does financial globalization promote risk sharing?

In theory, one of the main benefits of financial globalization is that it should allow for more efficient international risk sharing. In this paper, we provide an empirical evaluation of the patterns of risk sharing among different groups of countries and examine how international financial integration has affected the evolution of these patterns. Using a variety of empirical techniques, we conclude that there is at best a modest degree of international risk sharing, and certainly nowhere near the levels predicted by theory. In addition, only industrial countries have attained better risk sharing outcomes during the recent period of globalization. Developing countries have, by and large, been shut out of this benefit. Even emerging market economies, many of which have reduced capital controls and all of which have witnessed large increases in cross-border capital flows, have seen little change in their ability to share risk. We find that the composition of flows may help explain why emerging markets have not been able to realize this presumed benefit of financial globalization. In particular, our results suggest that portfolio debt, which had dominated the external liability stocks of most emerging markets until recently, is not conducive to risk sharing.     

Does trade stimulate product quality upgrading?

This paper investigates whether increased import competition leads firms to engage in incremental innovation reflected in product quality upgrading using Chilean manufacturing firm‐product data and measuring product quality with unit values (prices). We identify causal effects of import competition using an effective trade barrier measure – transport costs – as instruments for import penetration ratios across industries. Transport costs have a negative and significant effect on product quality. The evidence suggests that estimated unit value increases capture product quality upgrading, imports’ competition effects drive quality upgrading, and benefits depend on firms’ industrial specialization. Easier access to intermediate inputs also fosters quality upgrading.